Soft PPI Print Affirms Fed's Hold View

OVERVIEW : Thursday, August 13th, 26’

Markets remained mixed as US-Iran headlines provided rhetoric rather than tangible progress, with Iran saying talks with Oman were ongoing and positive while Pakistan continued efforts to extend the truce. However, the Strait of Hormuz remains blocked until Iran’s conditions are met, keeping disruption risks elevated and limiting the downside in oil. WTI and Brent remained subdued amid the lack of fresh developments. Softer US PPI and weaker-than-expected initial claims pushed yields lower, while a mixed Fed rhetoric kept the policy outlook uncertain. Markets now price around a 35% probability of a September hike, down from roughly 50% before the inflation report. Equities moved higher, led by continued tech outperformance, while precious metals remained subdued. Focus now shifts toward the Jackson Hole Economic Policy Symposium on August 27-29.

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US DOLLAR

USD had choppy price action, with the Dollar whipsawed between the softer domestic data and ongoing geopolitical headlines. The initial weakness following the softer-than-expected PPI was reinforced by Fed’s Barkin, who said many policymakers see current policy as restrictive enough to bring inflation down, while Hammack’s hawkish comments were largely looked through given her known stance. US initial jobless claims also rose more than expected, adding to the softer data backdrop, while a weak 30yr Treasury auction provided another headwind. The Dollar remained volatile rather than establishing a clear direction as geopolitical developments continued to provide intermittent support.

Data:

  • US Core PPI (Jul MM) 0.2% vs. Exp. 0.3% (Prev. 0.4%).
  • US PPI (Jul YY) 4.7% vs. Exp. 4.9% (Prev. 5.5%).
  • US PPI (Jul MM) 0% vs. Exp. 0.2% (Prev. -0.3%).
  • US Continuing Jobless Claims (Aug/01) 1777k vs. Exp. 1800k (Prev. 1799k).
  • US Initial Jobless Claims (Aug/08) 209k vs. Exp. 202k (Prev. 200k).


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EURO

EUR was well supported throughout the day, with firmer-than-expected Eurozone industrial production providing a positive domestic backdrop. June industrial production was flat M/M and rose 0.1% Y/Y, both beating expectations, while stronger-than-expected Spanish HICP added to the supportive inflation backdrop.

Data:

  • European Industrial Production (Jun MM) 0.0% vs. Exp. -0.1% (Prev. 0.3%)
  • European Industrial Production (Jun YY) 0.1% vs. Exp. -0.8% (Prev. -0.1%)
  • Spanish HICP Final (Jul YY) 3.9% vs. Exp. 3.8% (Prev. 3.6%).
  • Spanish HICP Final (Jul MM) 0.0% vs. Exp. -0.1% (Prev. 0.6%).


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GREAT BRITISH POUND

GBP had choppy price action on the day, with little sustained reaction to the mostly firmer-than-expected GDP data. Services remained supportive, although the weaker June breakdown and downward revisions to May tempered the headline strength and left the broader BoE hold narrative largely unchanged. BoE’s Pill, a known hawkish dissenter, argue that the UK growth outlook strengthens the case for a rate hike.

Data:

  • UK GDP Growth Rate Prel (Q2 QQ) 0.4% vs. Exp. 0.4% (Prev. 0.6%).
  • UK GDP Growth Rate Prel (Q2 YY) 1.2% vs. Exp. 1.1% (Prev. 0.9%).
  • UK GDP (Jun MM) 0.3% vs. Exp. 0% (Prev. 0.0%).
  • UK GDP (Jun YY) 1.1% vs. Exp. 0.8% (Prev. 1.2%).
  • UK Industrial Production (Jun MM) -0.2% vs. Exp. 0.1% (Prev. -0.7%).
  • UK Industrial Production (Jun YY) -0.2% vs. Exp. 0.2% (Prev. 1.0%).
  • UK Goods Trade Balance (Jun) -23.01 vs. Exp. -20.5 (Prev. -21.08).
  • UK RICS House Price Balance (Jul) -30% vs. Exp. -31% (Prev. -33%).


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AUSTRALIAN DOLLAR

AUD had choppy price action on the day, with the currency finding some demand in the late US session as the USD weakened. RBA’s Kent struck a broadly balanced tone, noting that policy is somewhat restrictive and that the earlier tightening is working, while leaving the door open to further rate increases if upside risks materialise.

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CANADIAN DOLLAR

CAD followed the early drop in oil prices, with the currency tracking the subsequent pullback in crude as strike reports in the Middle East kept the energy complex volatile. The domestic backdrop also remained a headwind, with Canada and the US reportedly not ready to reach a tariff deal and Canada dissatisfied with the latest US offer.

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NEW ZEALAND DOLLAR

NZD was sold off initially following a sharp decline in New Zealand inflation expectations, with both the 1-year and 2-year measures falling to 2.6% and 2.3% respectively. The Kiwi sustained a rebound through the subsequent sessions, however, ultimately closing marginally lower on the day.

Data:

  • New Zealand 1-year Inflation Expectations (Q3) 2.6% (Prev. 3.4%)
  • New Zealand 2-year Inflation Expectations (Q3) 2.3% (Prev. 2.5%)


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JAPANESE YEN

JPY was firm on Bloomberg reports that the Takaichi government supports a faster BoJ rate-hike path, with markets lifting September tightening expectations to around 75%. The move was reinforced by expectations that further confirmation could come directly from Takaichi. However, the Yen ultimately gave back all the gains and closed marginally lower on the day, while softer-than-expected Japanese PPI provided little additional support.

Data:

  • Japanese PPI MM (Jul) 0.1% vs. Exp. 0.6% (Prev. 0.4%)
  • Japanese PPI YY (Jul) 7.2% vs. Exp. 7.4% (Prev. 7.1%)


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SWISS FRANC

CHF caught some demand in early sessions on the back of weaker USD, however single currency lacked drivers later in the day closing marginally lower.